Equity Asset Allocation: Comparison of 8 Model Portfolios

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I’m still planning on reshaping my investments and continuing my choosing an asset allocation series, but Thanksgiving and work has thrown me off a bit.

To skip ahead a bit, here are several sample asset allocations from various sources for the equity (stock) side of your portfolio. I thought it would be helpful to see them all side by side and compare how different authorities might split things differently between domestic and international stocks, how they deviate from the “total” market indexes, and whether they choose to incorporate additional asset classes like real estate or commodities.

For more information about any specific portfolio and the source, just click on the pie chart.

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I know there are 10 gazillion allocation strategies, but you may want to check out coffeehouseinvestor.com (has book too of same name; I have no ties to either). He is all about keeping it simple and straight forward as well. His allocation showed only 2 down yrs since ’91. Allocation is something like: 10% each: LC blend, LC Val, SM Blend, SC Val, Intl, REIT, 40% fixed. Yea, that fixed is hard to take and intl may be out of date, but he lists his 16 yr rtn as 11% so that works OK by my books…

This kind of strategic asset allocation is just playing with numbers in the rear view mirror. If you accept the fact that over “intermediate” time periods — one to five years — a given market will move from undervalued to overvalued, why would you want to stick with any static (“strategic”) asset allocation? Just the fact that there are so many different allocation models should be a warning that none of them are a “holy grail.” One way to attack the undervalued/overvalued issue, and still use a static allocation (though I don’t think static is good for anyone) is to use a Research Affiliates-based index like the new series of ETFs from PowerShares using the FTSE/RAFI methodology. (Information only; I have no connection with PowerShares.)

These asset allocations are all very US-centric which seems like a dangerous game going forward.

Globalization is a technical and business reality and right now the US is the richest country in the world (and Canada, isn’t that far behind). By the very nature of “Globalization” this means that money will be flowing outwards from the US. Once you’re the biggest the only direction left to go is down.

Again, money is not flowing into the US, it’s flowing outwards, so that means that the highest growth region will necessarily be outside of the US. To that end, I think that it’s very relevant to incorporate “emerging markets” or at least incorporate US companies that benefit heavily from these “emerging markets”.

Many of these mixes seem to reflect a past where the USwas a growth market, but almost every sample portfolio is more than 50% invested in the US markets. It doesn’t take a psychic to know that more than 50% of the world’s economic growth over the next 10 years will be happening outside of the US. So why bet 70% of your portfolio on less than half of the world’s possible growth?

Of course, thanks Jonathan for the great collection of info. Very well-presented!

So 8 different portfolios based on 8 “expert” opinions, interesting. I was considering hiring a financial advisor/planner but honestly I don’t think anyone has the “correct” answer to help me construct my portfolio.

Great read! I can never get enough of asset allocation. The differences above are certainly indicative of the thinking on this topic. I have found the key to successful asset allocation is consistency over a long period of time.

For simplicity (and sanity) sake, my total investment portfolio consists of retirement (tax-advantaged), taxable, and cash. Are there many of you that count emergency fund cash as a part of your long-term portfolio? In other words, in a $1MM portfolio that is 90/10 stocks/bonds – is there any reason to not be 100% equity if you have 100k+ in HYS?

Best portfolio analyzer I have come across is the instant X-Ray analyzer at Morningstar website. I entered my information in both that website and in Vanguard and the X-ray provides a better detailed view of the 9 box matrix. Vanguard just shows everything as a blend.

In the “intelligent investor” pie chart, precious metals are listed instead of commodities. The largest part of commodities are in oil, agriculture, and small parts of other commodities. Shortages and wars that spike markets are part of the investing environment that make active investing prone to unanticipated reversals. Since commodities are counter cyclical to markets, they are a valuable hedge, IMO.

Thanks for an extremely informative website. While I’m aware that you’re not a financial advisor, I wanted to get your opinion on my current portfolio.

I’m originally from the UK and moved out to Israel around 5 years ago. I’m 39. I’m pretty new to investing and after having read a couple of books decided to build a 2 fund ETF portfolio. The goal is to gradually build up a surplus fund through regular contributions. I decided to keep it international as although I have no plan on returning to the UK, never say never.

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